All the Arts, All the Time

Artists' royalty suit may hinge on constitutional issue

October 21, 2011 | 6:30
am

Faced with a class-action suit over artists’ royalties that potentially would expose them to a huge cash verdict, Christie’s and Sotheby’s likely will challenge the constitutionality of the California law on which the claim is based.

The suit in U.S. District Court in Los Angeles contends that the two big auction houses have ignored their obligation to ensure that 5% of what a seller receives should go to the artist or the artist’s heirs. The law applies to all profitable sales of more than $1,000 — if the works are by American or California-based artists and the seller is a California resident or the sale takes place in California. The royalty siphons $250 from the proceeds of a $5,000 sale and $250,000 from a $5-million sale.

“We have meaningful defenses,” Sotheby’s said in a statement Wednesday, while Christie’s said, “it views the California Resale Royalties Act as subject to serious legal challenges” and “looks forward” to making its case in court.

The courts have been down this path once before.

Eric George, attorney for plaintiffs who include artists Chuck Close and Laddie John Dill and the estate of Robert Graham, said it’s unlikely Sotheby’s and Christie’s can argue successfully that the law is unconstitutional, since there’s a legal precedent to the contrary.

Soon after the California royalty rule went into effect in 1977, a Los Angeles art dealer, Howard Morseburg, filed a test case with the support of other art dealers, contending that “the state has no business interfering” in art sales. A trial judge and the 9th U.S. Circuit Court of Appeals found otherwise, and in 1980 the U.S. Supreme Court refused to take up Morseburg’s appeal.

But some legal minds aren’t so sure that the Morseburg precedent matters anymore. Because he sued in 1977, his contention that the California law was an unconstitutional intrusion on the federal government's prerogative of making copyright law had to be weighed against provisions of the federal Copyright Act of 1909. The courts found no conflict. But the ground rules may have changed in 1978, when the Copyright Act of 1976 took effect. Writing in 1980 in the Boston College International & Comparative Law Review, Carole M. Vickers noted that the new federal copyright law specifically says that it stands “exclusively” as the law of the land on all copyright-related matters, and that “the statutes of any state” are not valid.

Vickers wrote that the California law “arguably … conflicts” with the federal copyright law, and a 1995 article by Michael B. Reddy in Loyola Marymount University’s Loyola of Los Angeles Entertainment Law Review says that “because of the unambiguous language found in both the legislative history and the text of the Copyright Act of 1976, there are serious doubts” about whether a constitutional challenge to the California resale royalty law would fail again.

“The question for the courts would be whether the California law is equivalent to a copyright law, and I don’t have an answer to what that would be,” Bruce Lehman, a Washington copyright expert who’s helping to draft a new federal bill that would create a national resale royalty provision for artists, said Wednesday.

If Christie’s and Sotheby’s were to lose the class action, they’d be on the hook not only for 5% plus interest on each disputed sale, but for attorneys fees and — the real potential haymaker to their bottom lines — punitive damages.

An artists’ royalty provision, known as droit de suite, has long prevailed in some European countries — and in 2006 it took effect throughout the European Union, including Ireland and Great Britain, which previously didn’t allow visual artists’ resale royalties. In the United States, Rep. Henry A. Waxman (D-Beverly Hills) tried and failed in 1978 to pass a national bill modeled on the California statute; according to Reddy in the LMU legal journal, several bills introduced in Congress during the late 1980s also failed.

But Congress asked the U.S. Copyright Office to report on the issue, and in 1992 it delivered a 400-page assessment, which advised against giving visual artists a resale royalty right. One concern was that major sellers and auctioneers might simply take their business to Great Britain. But, according to Reddy, the report said that “Congress may want to take another look,” should the European Union extend droit de suite to all its member states.

Well, it has. And the U.S. Congress may soon get to grapple with the issue again. Robert Panzer, executive director of the New York-based Visual Artists and Galleries Assn. (VAGA), said Wednesday that his group and the Artists Rights Society, also based in New York, are drafting a bill that would require all art sellers in the United States to pay royalties.

“We’ve tried to simplify the bill so it wouldn’t be too complicated to enforce, the way it is in California now,” Panzer said. Among the arguments in favor of a royalty, he said, is that because of the U.S. government’s reciprocity agreements with the European Union, when America passes a royalty law, a substantial group of American citizens — namely visual artists — would become entitled to royalty payments on sales in Europe as well.

Panzer notes that despite his group’s name, it has been years since VAGA represented galleries as well as artists; too often, he said, their economic interests conflict. The group mainly tries to safeguard the rights of its members, about 500 well-established artists in the United States and more than 6,000 overseas, when it comes to reproductions of their work. But VAGA also has taken an interest in enforcing the California resale royalty law. After a Christie’s auction grossed more than $93 million last year for a California-based seller — the estate of author Michael Crichton — Panzer said VAGA asked the auction house and the estate to make sure a 5% royalty was paid.

“Christie’s has said it’s not their problem,” Panzer said, while “the attorney for the Crichton estate has said they don’t believe the money is owed, based on their interpretation of the law.”

Photo: Laddie John Dill, seen here in his Venice studio, is one of the artists who have brought a class-action suit against Sotheby's and Christie's seeking royalties under California's Resale Royalties Act. Credit: Ricardo DeAratanha / Los Angeles Times